Prelim #3

Question 1

What is pure risk?

Answer 1

Exposure to risks of loss only, which can be insured.

Question 2

What are examples of pure risk?

Answer 2

• car accident
• Fire (Ex: house fire)
• Typically very random
• Accidental, unintentional

Question 3

What is speculative risk?

Answer 3

Exposure to risks of loss and gain. These risks are uninsurable.

Question 4

What is risk?

Answer 4

Uncertainty or lack of predictability. Some risks are in your control like getting cancer from smoking while some risks are out of your control like inflation.

Question 5

What is a peril?

Answer 5

The cause of a possible loss such as a fire, windstorms, explosions, robbery, accidents, and premature death

Question 6

What is a hazard?

Answer 6

A factor that increases the likelihood of loss through some peril such as defective house wiring or drunk driving.

Question 7

What is risk management

Answer 7

Organized, planned strategy to protect your assets and family.

Question 8

What are risk exposures?

Answer 8

• Dying
• Getting sick or injured
• Becoming disabled
• Victim of a crime
• Professional malpractice
• Running out of money
• Auto
• Home
• Personal Property

Question 9

What are some risk management techniques?

Answer 9

• Risk Avoidance
• Risk Shifting
• Risk Assumption
• Risk Reduction

Question 10

What is risk avoidance?

Answer 10

Not exposing yourself to the risk.

Question 11

What is risk reduction?

Answer 11

Take action to reduce the frequency or severity of risk.
Examples:
-clear your sidewalks of snow (frequency)
-wear seatbelts (severity)

Question 12

What is risk assumption?

Answer 12

Retain the risk and plan to pay the costs if the loss occurs.

Question 13

What is risk shifting?

Answer 13

Transfering the risk or contractually pass the risk on to another.
Examples:
-Health insurance deductible
-Hold harmless agreement

Question 14

What is rider?

Answer 14

Any document attached to the insurance policy that modifies its coverage by adding or excluding specified conditions or altering its benefits. Ex: A whole life insurance policy may include a waiver of premium disability benefit, an accidental benefit, or both.

Question 15

What are riders of insurance contracts?

Answer 15

• Waiver of premium disability benefit
• Accidental Death Benefit
• Guaranteed Insurance Option
• Cost-of-Living Protection
• Accelerated Benefits
• Second to die Option

Question 16

What are the provisions of a life insurance contract?

Answer 16

• Naming your beneficiary
• The Grace Period
• Policy Reinstatement
• Nonforfeiture clause
• Incontestability clause
• Suicide clause
• Automatic premium clause
• Misstatement of age provision
• Policy loan provision
• Riders to life insurance policies

Question 17

What is umbrella insurance?

Answer 17

• Also called a personal catastrophe policy
• Supplements your liability
• Protects against libel, slander, defamation of character
• Increases bodily injury and property damage coverages

Question 18

III. The 500 in 200/500/50 refers to

Answer 18

The limit of all bodily injury claims for a single accident.
Example:
-200k paid to one person in an accident
-500k paid to all persons in an accident
-50k paid for damage of property to others

Question 19

Healthcare policy for disease with a notoriously poor value.

Answer 19

Cancer health care policy

Question 20

Most young and healthy people don’t think about what?

Answer 20

Disability insurance

Question 21

What are common ways life insurance is used?

Answer 21

• Charitable gift
• Equalize inheritances
• Pay for funeral expenses
• Pay for college education

Question 22

Generally speaking how much life insurance should you get?

Answer 22

7x your income + 70% of your income

Question 23

What is the riskiest type of life insurance policy for the insured?

Answer 23

Variable life insurance policy